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SCOTUS reverses Federal Circuit in TC Heartland, Patent Venue in State of Incorporation

Earlier today the United States Supreme Court issued its much-anticipated decision in TC Heartland LLC v. Kraft Food Group Brands LLC. In a unanimous decision of the Court delivered by Justice Thomas (minus Justice Gorsuch who did not participate in consideration of the case) the Supreme Court reversed the Federal Circuit and ruled that 28 U.S.C. 1400(b) remains the only applicable patent venue statute, that 28 U.S.C. 1391(c) did not modify or amend 1400(b) or the Court’s 1957 ruling in Fourco Glass Co. v. Transmirra Products Corp., and that the term “residence” in 28 U.S.C. 1400(b) means only the state in which a company is incorporated. The importance of this ruling should be immediately felt on patent litigation in the United States. No longer will a patent owner be able to sue an infringing defendant in a district court where the defendant is subject to personal jurisdiction. Instead, patent infringement lawsuits will only be able to be filed in districts within states where the infringing defendant is incorporated, or in districts where there has been an act of infringement and the defendant has a regular and established place of business.

The Real Issue & SCOTUS Decision

Ultimately, the question those supporting TC Heartland wanted the Supreme Court to address was whether the Eastern District of Texas, which is home to approximately 35% of all patent litigations because it is perceived to be patent owner friendly, is a proper venue for patent owners to be choosing.

Pursuant to § 1400(b), a “patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” Pursuant to § 1391(c), a corporation is deemed to be a resident of “any judicial district in which such defendant is subject to the court’s personal jurisdiction…”

In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that § 1400(b) is not to be supplemented by § 1391(c) and that “§ 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions…” While that might seem to have ended the inquiry on its face, the Federal Circuit has for 25 the last years ignored the Supreme Court ruling in Fourco Glass based on the belief that 1988 amendments by Congress “rendered the statutory definition of corporate residence found in § 1391 applicable to patent cases.” Thus, it has been the belief of the Federal Circuit that Congress overruled the Supreme Court’s ruling in Fourco Glass, which Congress obviously has the authority to do.

In 1990 the Federal Circuit decided VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990), which announced its view that the Judicial Improvements and Access to Justice Act of 1988 made 1391(c) applicable to patent infringement actions. At that time Congress amended the general venue statute, §1391(c), to provide that “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.”

Following VE Holding, no new developments occurred until Congress adopted the current version of §1391 in 2011 (again leaving §1400(b) unaltered). Section 1391(a) now provides that, “[e]xcept as otherwise provided by law,” “this section shall govern the venue of all civil actions brought in district courts of the United States.” And §1391(c)(2), in turn, provides that, “[f]or all venue purposes,” certain entities, “whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defend- ant is subject to the court’s personal jurisdiction with respect to the civil action in question.”

In TC Heartland, the Supreme Court determined that Congress did not intend to change the meaning of 1400(b), or to overrule the decision in Fourco Glass because “[W]hen Congress intends to effect a change of that kind, it ordinarily provides a relatively clear indication of its intent in the text of the amended provision.” The Supreme Court also relied on the 2011 changes that added “otherwise provided by law” as some evidence that Congress must have wanted 1400(b) to apply, which would be “otherwise provided by law.”

The Supreme Court simply dismissed as unbelievable the thought that Congress ratified the Federal Circuit’s decision in VE Holding with the 2011 amendments: “In short, nothing in the text suggests congressional approval of VE Holding.” Of course, by the time of the 2011 amendments the Federal Circuit had ruled for nearly a generation that patent infringers were subject to lawsuits wherever they were subject to personal jurisdiction.

Interestingly, while discussing the 1988 amendments Thomas explained that if Congress meant to overrule Fourco Glass and change 1400(b) they would ordinarily provide a clear indication of intent in the text of the amended provision. However, such a clear intended to revert back to Fourco Glass and 1400(b) being the sole venue provision didn’t seem to require a clear indication at all. It must be nice being a Supreme Court Justice. Internally consistent logic is optional I guess.

Even if this Court were inclined to wade into the patent venue dispute, this case would be a poor vehicle. It presents none of the forum-shopping concerns discussed by Petitioner. Respondent developed and practices the patented inventions and sued Petitioner, a nationwide infringer, not in Texas but in the jurisdiction where Respondent is incorporated and suffered injury and where Petitioner purposefully directed sales of its infringing product. App. 2a. It is telling that Petitioner could muster no more than a cursory argument in favor of a § 1404(a) discretionary venue transfer.

Kraft is, of course, correct. Obviously, this case has nothing to do with forum shopping whatsoever. TC Heartland shipped allegedly infringing products into Delaware and was sued in Delaware. How that can or should be surprising is a real mystery.

What is really going on is this case was used by those with an agenda to attempt to make a statement about what is happening in the Eastern District of Texas, in a patent owner friendly district court. That the Supreme Court would take this case and force Kraft to play an unwilling and unjustifiable role in a macabre judicial protest with heavy political overtones is unconscionable.

The Author

Gene Quinn
is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. Gene is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 26 Comments comments.

CW5May 22, 2017 1:05 pm

Some initial thoughts and observations:

1. Obviously, and as anticipated, the E.D. Tex. is done as a patent litigation forum.

2. Ironically, T.C. Heartland, a case in which a defendants was trying to move a case out of Delaware, will lead to a huge number of patent cases being filed in Delaware.

3. Under T.C. Heartland, district courts will now be faced with deciding where LLC’s, general partnerships, limited partnerships “reside” for purposes of 1400(b), despite the fact that 1391(c) provides perfectly good definitions of where such entities reside.

4. It appears that in T.C. Heartland, the Supreme Court just made foreign corporations that don’t have a “regular and established place of business” completely immune from patent infringement claims in USA. So much for national competitiveness.

5. Congratulations Delaware patent litigators. You all just became millionaires.

6. Finally, should patent venue be determined by which states chose to make their corporation and tax laws attractive to businesses, or should someone at the federal level actually make that determination?

AriMay 22, 2017 1:30 pm

So this is it – no more flow of patent cases to Marshall, TX?

CW5May 22, 2017 2:17 pm

Plano, Texas, which is within the Eastern District of Texas, is home to more large corporations than many people realize. For example, Samsung and Huawei both have regular and established places of business in Plano. Toyota is also in the process of setting up shop in Plano. However, the bottom line result is that far, far fewer cases will filed in the Eastern District of Texas.

BemusedMay 22, 2017 2:33 pm

There are hundreds of cases pending in the EDTX that will now either get dismissed or transferred. And if a plaintiff has sued multiple defendants which were consolidated (but only for pre-trial purposes thanks to the AIA) by a judge in the EDTX, then plaintiffs are almost certainly looking at multiple defendants being transferred to multiple jurisdictions.

The consequence will be that these types of cases will be sent to MDL panels resulting in delays of many months while the motions to dismiss/transfer followed by motions to transfer to MDL get sorted out.

And going forward, what does a plaintiff do if they want to sue multiple defendants that “reside” in different jurisdictions? File a few here, file a few there and then end up in front of an MDL panel which can essentially send all those cases to a completely unrelated jurisdiction for pre-trial proceedings.

What a(nother) mess SCOTUS has created for patent holders.

Edward HellerMay 22, 2017 2:39 pm

Good analysis, Gene. I agree with it.

I also agree with you, CW5.

On foreign corporations, I think the courts will hold (once again) that the patent venue statute was never intended to apply to foreign corporations in the first place. Thus the general venue statute will apply.

On LLCs, the general venue statute will apply to the definition of residence because Congress has never addressed LLCs and patent venue. The prior Supreme Court cases involving the patent venue statute, Stonite, Fourco, Brulotte and TC Heartland, all were limited to “corporations.”

The bottom line is that TC Heartland, being an LLC, may still lose its venue argument.

Gene QuinnMay 22, 2017 2:39 pm

Bemused raises an interesting point. Does anyone know how MDL patent litigation works? How it will work under this Supreme Court ruling? It would seem peculiar for venue to be proper in an MDL case if all of the defendants are not incorporated in the state.

John WhiteMay 22, 2017 2:44 pm

Well, we can all cancel our condo purchase plans in the ED Texas. Instead, let’s head for Delaware. Better climate, closer to beaches, better rail and air access. A little pricier, but worth it.

Paul MorinvilleMay 22, 2017 3:10 pm

How is it that a venue provision amended in the America Invents Act, an Act targeted solely to patents, does not apply to patents? Am I confused? Or is the Supreme Court totally warping their decision to fit the Google narrative?

ChuckMay 22, 2017 4:40 pm

“Internally consistent logic is optional I guess.”

What’s internally inconsistent about that argument? If we assume that the 1988 amendments didn’t overrule Fourco Glass because Congress didn’t express a clear intent to overrule it, then there’s no need for Congress to signal an intent to “revert back” to Fourco Glass–instead, Fourco Glass has been the correct rule all along.

This argument might be *wrong*, but I don’t see how Thomas is being internally inconsistent.

Gene QuinnMay 22, 2017 5:36 pm

Chuck-

Read the opinion to the end. At the bottom of page 9 and following Thomas points out the the entire rationale in VE Holdings was that Congress replaced “for venue purposes” with “[f]or purposes of venue under this chapter”. Thomas then points out that Congress removed that language in 2011. So it is internally inconsistent and illogical to require clear and explicit language in 1988 to support the Federal Circuit’s reasoning but then to have no such clear and explicit language in 2011 and to yet still divine Congressional intent. You can’t have it both ways. Perhaps Thomas is right and Congress didn’t intend what the Federal Circuit said they intended with the 1998 amendments. But if clear and explicit language is necessary to divine intent relative to the 1998 change, then clear and explicit language should also be required to divine intent relative to the 2011 change. But when you are SCOTUS you can make things up as you go along.

-Gene

Night WriterMay 22, 2017 7:15 pm

This seems like another hack job by the justices. If Congress wanted to change this in 2011, then they would have.

Pretty clear the message is: if you have a patent and want to enforce it, then F you.

Erick RobinsonMay 23, 2017 2:12 am

Well, China is still open for cases. Y’all come in over!

Night WriterMay 23, 2017 5:08 am

The holding of this case is that Google can buy the SCOTUS. And, that Mark Lemley has another resounding success with his propaganda machine.

Night WriterMay 23, 2017 5:15 am

Reality: add up all the awards from software and they amount to less than one year of banked profit from Google. Reality: fewer patent applications –by far–are being filed per $1 billion dollars of GDP generated from high-tech than were filed 30 years ago.

I think the only way patent law has a chance of surviving Lemley and Google is a political action committee that counters the money that Google gives to Congress and challenges the ethics of Mark Lemley.

Reality. Try to live in it. Endless yapping about the law means nothing when you have courts selected by Google (CAFC) and the SCOTUS that is easily influenced by the large corporations. That is the law.

staffMay 23, 2017 7:30 pm

When small entity inventors have to sue our large competitors in their backyards where they dominate the economies and influence the courts we have no fair chance of prevailing. If we are robbed by our large competitors in any state where they have a meaningful presence, shouldn’t we be able to sue them there? Hasn’t that always been the case in American law with torts? All these decisions do is make it easier for our much larger competitors to rob and crush us. Show us a country with weak or ineffective property rights and we’ll show you a country with high unemployment and a weak economy. When thieves win America loses.

It’s telling that Quinn only mentioned “plaintiff favorable” and nothing about undue hardship etc… (the usual go to’s about venue) clearly telegraphing his main problem – having to actually argue a case on its merits.

If the invention is valid, then there doesn’t really need to be any worrying about the outcome.

Gene QuinnMay 24, 2017 10:25 am

Evanstreth-

Your comment is obviously intended to be a slight at me. Unfortunately, you were unable to phrase your message so it conveyed a coherent thought.

I assume what you are trying to say is that if the merits of the case are strong it doesn’t matter where you litigate. If that is, in fact, what you were trying to say it demonstrates a true lack of understanding and exceptional ignorance. The facts are what the facts are, and there are many district courts in America where the judges are simply hostile to patent rights. There can be no legitimate debate that suggests otherwise.

-Gene

MikeMay 24, 2017 3:26 pm

Well SCOTUS just threw everyone, especially legitimate patent owners, under the bus with Heartland. This now demands the need for Congress to provide patent venue reform, because as it stands, all small inventors now hold worthless pieces of paper because it is too costly for them to chase defendants in their incorporated states. Favor has just shifted to big business, who will now just steal away and bully with 100% home court advantage. To remedy this, 1400(b) should also include venue in districts at least where inventors did their research or where they reside.

Interestingly, the first post-TC Heartland venue decision did not come from the TXED, but from the ILCD. Yesterday, that court sua sponte ordered “In light of the recent United State Supreme Court case, TC Heartland LLC.v Kraft Foods Group Brands LLC, 2017 WL 2216934 (May 22, 2017), the parties are DIRECTED to brief whether venue is proper in this district.”

EvanstrethMay 24, 2017 7:41 pm

You’re right, maybe I’d know what I’m talking about if I had taken “Courts that don’t find for the plaintiff are hostile to patent owners: How the Eastern District of Texas is the ONLY venue for patent cases” in law school.

Even if I were to give you the benefit of the doubt about your “many DC judges are hostile to patent rights” comment, your answer to that is equally laughable – “go to a DC where the judges are hostile to the other side”.

You’re the obverse of what you despise. The ED of Texas has had tonnes of analysis done on it, all coming to the same conclusion – it’s picked not because the judges know what they are doing (they don’t, intro skills in WestLaw would show you that, no, I will not do your homework for you), but because they constantly find for the plaintiffs regardless of the facts.

You made the wrong point when you argued using “hostility” since that’s relative to the side you’re on. Pro tip – when it comes to law, it’s better to stick to the facts, and not to you feelings of them.

Gene QuinnMay 25, 2017 10:26 am

Evanstreth @20-

Your comment is once again difficult to follow. If you are unable to communicate your thoughts please move along.

Reading between the lines and trying to figure out what you are trying to say, it seems you think that plaintiffs pick the Eastern District of Texas because they “constantly find for the plaintiffs regardless of the facts.” Once again you show that you are unfamiliar with factual reality and armed only with talking points. The Eastern District of Texas is not nearly as friendly to plaintiffs as you, the infringer lobby or the popular press make them out to be. The Eastern District of Texas does give very large verdicts in some cases, but juries are as likely (if not more likely) to give patent owners little or nothing. The reason patent owners like the Eastern District of Texas is: (1) because it is much more difficult from those who are infringing to win on procedural motions, which means patent owners get their day in court in front of a jury; and (2) because they are swinging for the fences in those few cases that award big numbers and not deterred by the vast majority of cases where awards are little or nothing.

As for you not wanting to believe that there are some district court judges hostile to patents, your choice to remain ignorant is your choice.

You are entitled to your opinion, but you are not entitled to your own facts. Ignorance is a condition that can be remedied. I recommend you inform yourself rather than play the part of the fool.

-Gene

OwenMay 25, 2017 6:00 pm

TC Heartland isn’t going to change anything about cases against foreign corporations nor against big national companies. Big national companies usually have an establishment in EDTX, which is a giant district. Foreign corporations can still be sued anywhere.

But it will be a giant relief to small and medium businesses being dragged to unfavorable venues in an attempt to bankrupt them or force them to submit with unusually high and fast pre-trial expenses.

I expect EDTX business to shrink but to remain a place with a few unusual advantages for plaintiffs in really big scale litigation occasionally.

On the question of LLCs, most LLCs, LLPs, nonprofits, and limited partnerships are considered to be the same thing as a corporation in most cases. They’re state created fictional persons with various distinguishing characteristics and they’re still not natural persons or individuals. There’s no reason for the federal courts to recognize the proliferation of different names for the same thing in state law, it’s a matter of distinction without a difference for federal courts.

The IRS actually asks them to check a box on their initial registration forms (request for an identifying number) to be treated as corporations or partnerships.

Regular partnerships are treated as individuals in most cases, since individuals can become partnerships legally just by cooperating informally. No registration is required or even offered. It’s better, of course, to write out a partnership agreement but not necessary. And there’s nowhere you would need to register such an agreement.

AnonMay 25, 2017 6:12 pm

Owen,

I am unsure why you would posit that “On the question of LLCs, most LLCs, LLPs, nonprofits, and limited partnerships are considered to be the same thing as a corporation in most cases.”

The takeaway from the explicit provision before the Court was very clear that ONLY corporations are affected.

The notion that you (and in truth, anyone) feels that these other juristic entities “are considered to be the same thing” will NOT suffice for that section of law to apply. This is most definitely NOT a “matter of distinction without a difference for federal courts.”

At all.

I am truly shocked that you would venture this opinion that is so blatantly incorrect.

P8nt H8rMay 25, 2017 7:29 pm

This is the first “venue” discussing this case that doesn’t over-focus on how the holding is designed to limit “patent trolls”. It’s like folks don’t like the idea of patents but, instead of abolishing them, they decide to make them hollow. Application of BRI and heightened subject matter eligibility before the patents can get through the PTO, dispute venue only being home-town for defendants – the only things left to do are to remove presumption of validity and to increase the standard of proof to beyond a reasonable doubt! Then patents will be there, but in name only – they’ll be toothless. Hopefully, the pendulum swings back a little bit toward patentees/applicants in the next decade, or patent attorneys, judges, and examiners will all be out of jobs….

AnonMay 26, 2017 12:25 pm

P8nt H8r,

Perhaps unintended, but I take it as a slight from you to place “worry over having a job” as a concern for patent attorneys.

At least with this attorney (and the attorneys I personally know or work with), the concern for our job does not even enter the picture. The driving concern is concern for the well-being of the client, hand in hand (for me personally) with a driving concern for the fundamentals of innovation itself.

While I am not dismissing out of hand the notion that practicalities exist, I do not “feed” worry over those practicalities.

Long before my job disappears, there will be far greater concerns to deal with.

TomMay 31, 2017 2:00 pm

I am an independent inventor. What big business needs to realize that the more difficult they make it for small inventors like me to enforce my IP, the more likely I will cede my IP over to a PAE/troll, simply because I cannot afford the now additional expense to travel to multiple states in order to enforce my IP rights. PAEs have a value proposition (and financial backing) that can enforce my IP rights for me, and that value proposition just increased as a result of Heartland.

1400(b) should also include venue in districts at least where inventors did their research or where they reside.

Under its new construction of venue in 1400(b):
– defendants keep their state of incorporation,
– inventors get representation because it takes into consideration where inventors reside and/or their research was done, and
– because PAEs are not the listed inventors in the patents they own, forum shopping is still nixed for them.

This bill was sponsored by Senator Jeff Flake. Call his office and ask for him to put it back on the table. 202.224.4521.

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